U.S. Attorney's Office for the Eastern District of New York Files Separate Criminal Complaint

FOR IMMEDIATE RELEASE
2006-137

Washington, D.C., August 9, 2006 - The Securities and Exchange Commission today filed civil charges against three former senior executives of Comverse Technology, Inc. (Comverse), alleging that they engaged in a decade-long fraudulent scheme to grant undisclosed, in-the-money options to themselves and to others by backdating stock option grants to coincide with historically low closing prices of Comverse common stock. Two of the executives, Comverse's founder and former Chairman and CEO Jacob "Kobi" Alexander, and David Kreinberg, Comverse's former Chief Financial Officer, also created a slush fund of backdated options by causing options to be granted to fictitious employees and, later, used these options to recruit and retain key personnel. The other executive charged in the SEC complaint is William F. Sorin, Comverse's former General and Senior General Counsel, and a former Comverse director.

The complaint alleges that the former executives collectively realized millions of dollars of ill-gotten compensation through the exercise of illegally backdated option grants and the subsequent sale of Comverse common stock. As part of the scheme, the former executives made material misrepresentations to investors regarding Comverse's stock option grants and concealed from investors that Comverse had not recorded compensation expenses for option grants. As a result, Comverse, a maker of software, systems, and related services for multimedia communication and information processing applications headquartered in New York, N.Y., materially overstated its net income and earnings per share between 1991 and at least 2002.

In a separate matter, the United States Attorney's Office for the Eastern District of New York today unsealed a criminal complaint charging Alexander, Kreinberg, and Sorin with conspiracy to violate the antifraud provisions of the federal securities laws, wire fraud, and mail fraud by engaging in the same scheme.

"Shareholders have a right to full, complete, and accurate information regarding executive compensation. As alleged, the backdated option grants and secret option slush fund was a deceit of the highest order upon Comverse Technology Inc.'s shareholders," said Linda Thomsen, Director of the Commission's Division of Enforcement. "The action we take today represents another step in the Commission's ongoing effort to address and stamp out fraudulent stock-option practices."

Antonia Chion, Associate Director of the Commission's Division of Enforcement said, "The defendants charged today allegedly realized millions of dollars in illicit compensation through their secret backdating scheme and grossly misled Comverse Technology, Inc. investors by repeatedly representing in various disclosure documents that options granted to themselves and others were not in-the-money grants. This action, brought after a five-month investigation, indicates that the Division of Enforcement is prepared to marshal its resources to aggressively and quickly pursue fraudulent stock option practices."

The Commission's complaint, filed in the United States District Court for the Eastern District of New York after a five-month investigation, alleges that, beginning in 1991, Alexander repeatedly used hindsight to select a date when the closing price of Comverse's common stock was at or near a quarterly or annual low. Alexander later communicated this date and closing price to Sorin in order for it to be used as the date of, and exercise price for, a grant of Comverse options. Sorin, with Alexander's knowledge, then created company records that falsely indicated that a committee of Comverse's board of directors had actually approved the option grant on the date Alexander had "cherry-picked." Kreinberg, the complaint alleges, joined the scheme no later than 1998, and assisted Alexander in selecting backdated grant dates. Kreinberg knew that company records reflected false grant dates.

Alexander and Kreinberg, according to the complaint, also created a slush fund of backdated Comverse options between 1999 and 2002 by, among other methods, secretly inserting fictitious names amid the names of actual Comverse employees on proposed option grantee lists which then were submitted to a committee of Comverse's board of directors for approval. Kreinberg instructed a Comverse employee to conceal the existence of the slush fund from Comverse's auditors and in March 2006, after learning that a special committee of Comverse's board would investigate the company's option grants, Kreinberg undertook to hide the existence of the slush fund by altering records in Comverse's electronic option-tracking system. Alexander, Kreinberg, and Sorin also made misrepresentations to Comverse's auditors in order to conceal the backdating scheme.

As a result of the scheme, the complaint alleges that Alexander realized actual gains of nearly $138 million from sales of stock underlying the exercises of backdated options that were granted during the 1991 through 2001 period. At least $6.4 million of this gain represents the in-the-money portion of the options at the time of the grant to Alexander. Kreinberg realized an actual gain of nearly $13 million from sales of stock underlying the exercises of backdated options that were granted during the 1994 to 2001 period, with at least $1 million of this gain representing the in-the-money portion of the options at the time of the grant to Kreinberg. Sorin realized an actual gain of more than $14 million from sales of stock underlying the exercises of backdated options that were granted during the 1991 to 2001 period, with approximately $1 million of this gain representing the in-the-money portion of the options at the time of the grant to Sorin.

The complaint alleges that under well-settled accounting principles in effect at the time, companies that granted in-the-money options were required to record a corresponding compensation expense and disclose such amounts in filings with the Commission. Comverse has publicly announced that it expects to restate historical financial results for multiple years in order to record additional, material non-cash charges for option-related compensation expenses.

Between fiscal year 2001 and 2002, Kreinberg, with Sorin's knowledge, is alleged to have initiated a similar backdating scheme at Ulticom, Inc., a publicly-traded, majority-owned subsidiary of Comverse. Like Comverse, Ulticom has publicly announced that it expects to restate historical financial results for multiple years in order to record additional, material non-cash charges for option-related compensation expenses.

The Commission's complaint charges Alexander, Kreinberg, and Sorin with violations of the antifraud, books and records, internal controls, misrepresentations to auditors, and ownership reporting provisions of the federal securities laws. Alexander and Kreinberg are separately charged with violations of the Sarbanes-Oxley officer certification provisions of the federal securities laws. In addition, the Commission's complaint alleges that Alexander, Kreinberg, and Sorin aided and abetted Comverse's and/or Ulticom's violations of the periodic reporting, books and records, and internal controls provisions of the federal securities laws. The Commission's action seeks injunctive relief, civil penalties, disgorgement, with prejudgment interest, and officer and director bars against each of the defendants.

The Commission would like to acknowledge the assistance of the United States Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation, which conducted their own separate, parallel investigations.